There are a few different types of business entities in the United States, and the LLC is one of them. Limited liability companies, known as LLCs, provide protection for members (owners) against the company’s debts or liabilities. In Florida, LLCs combine both the characteristics of a corporation along with the benefits of a partnership or sole proprietorship.
What is a Single Member LLC?
Single-member LLCs are essentially the exact same structure as a standard LLC. The only difference between an SMLLC and a standard LLC is that an SMLLC has one member. Standard LLCs can have as many members as they wish.
Under current IRS rules, unless the single-member LLC elects to be taxed as a corporation, it is considered a disregarded entity. Essentially, this means that the LLC is disregarded for Federal income tax purposes, and all income passes to the owner. This is known as “pass-through taxation.”
SMLLC Benefits in Florida
There are a number of potential tax savings when comparing a single-member LLC to a sole-proprietorship.
Limited Liability Protection
Because an SMLLC is a separate entity, you will be afforded limited liability protection. This means that if your business is sued for any reason, the creditor or plaintiff cannot come after your personal assets.
Using the guise of an LLC, whether a single member or not, always looks more professional. It can also help you to appear more professional to banks or investors when looking to obtain funding.
Forming a single-member LLC means that the business is a separate entity. It will no longer be attached to the owner for either tax or liability purposes.
If formed anonymously, forming a single-member LLC allows you to stay completely anonymous in all business transactions. Instead of your name on ownership records, it will legally be the name of your LLC.
In order to obtain a loan, you will need a business bank account. In order to obtain a business bank account, you will need to have a registered business. This is where the LLC comes in. Forming an LLC sets you up as a legitimate business in the eyes of the business world.
How to Form a Single Member LLC
In order to form a single-member LLC, there are not many steps that differentiate the process from forming any other LLC. The main difference that exists with a single-member LLC is that there is only one owner. You may need to mention the fact there is only one owner in your articles on incorporation, but chances are, the operating agreement will be simpler.
Steps to forming a single-member LLC include:
- Go to the Florida department of state business division website to obtain information.
- File the Articles of Organization and pay a filing fee.
- Consider preparing an operating agreement to dictate how you plan to run the business.
How is a Single Member LLC Taxed in Florida?
By default, a single-member LLC is taxed as a disregarded entity. Despite this, there is also the option to be taxed as a C or S-Corp through an additional filing with the IRS. The only method of taxation an SMLLC cannot elect is as a partnership due to the lack of more than one member.
Single-member LLCs are subject to a few forms of federal and state taxes. Similar to other businesses, these taxes must be paid to the IRS. There is one main difference in terms of payment method.
Federal Income Tax
Because an LLC is not a taxing entity, the IRS designates single-member LLCs to be taxed as sole proprietors. This means that a single-member LLC reports business income taxes on a Schedule C. The net income from the business will be combined with any other income on the personal tax return of the LLC owner.
State Income Tax
In the state of Florida, there is no state income tax.
Single-member LLC owners are similar to sole proprietors in that they are considered self-employed. As a self-employed individual, single-member LLC owners must pay self-employment taxes.
In the state of Florida, the self-employment tax is 15.3% and divided into two parts. The first portion of 12.4% is for Social Security, and the last 2.9% is for Medicare or hospital insurance.
Florida Employer Identification Numbers
In order to be seen as a business, a single-member LLC needs an Employer ID Number (EIN). This is similar to a social security number for your business. Even if you have no employees, you will still be required to obtain an EIN. This number is essential because banks require an EIN to open a business bank account, meaning you will also need this number to obtain loans or funding.
It is good to note that when paying taxes, you will use your personal tax ID (not the EIN). This will be necessary while completing a W-9 form as an independent.